Here’s how disturbing Eurozone deleveraging is in Asia

Eurozone bank loans to Singapore alone fell by 7% to US$58bn in March this year from its peak in June 2011.

According to Nomura Research, from Q2 2011 to Q1 2012, outstanding eurozone bank loans to Asia fell
16% (-USD68bn) to USD346bn, with the sharpest falls in Q3 2011 and Q4 2011 (average 10.2% q-o-q fall).
Nomura noted that although the improvement in credit conditions in Q1 2012 (after the ECB‟s 3yr LTRO) may have led to a stabilisation in eurozone bank lending to Asia, the risk of further deleveraging remains intact.

“That said, the pace may be more orderly because of the prospect of ECB support, which will be key for Asia’s financial markets. The deleveraging may continue as European and US banks have yet to reach minimum capital standards to meet Basel 3 core tier 1 ratios,” it said.

Nomura nonetheless said that the breakdown of European bank loans to Asia is encouraging as there has been significant deleveraging from French banks.